Bankers Pressing for States to Legislate Shield from Cleanup Liability

Bankers in Vermont, New York, and Tennessee are urging their state legislatures to support measures exempting lenders from environmental cleanup costs.

Lawmakers in the three states are considering bills that would let bankers foreclose on contaminated properties without taking on cleanup liability so long as they were not actively involved in managing the properties.

The bills would remove any concern by bankers that state agencies might sue them to pay for cleanups.

The Tennessee and New York bills even specify what actions are permissible for banks that want to gain the "safe harbor."

"What we're trying to do is set up very strict guildelines that banks know exactly what they can and cannot do," said David Braam, associate counsel for the Tennessee Bankers Association.

Even with state laws, however, bankers are still eagerly seeking congressional action to restore federal protection lost in February 1994. A federal appeals court in the District of Columbia threw out an Environmental Protection Agency rule exempting banks from liability when they foreclose.

The federal Superfund reform bill includes a provision restoring the overturned EPA regulation, but the bill is stalled in Congress.

Without federal protection, bankers agree, state laws can't prevent a third party from suing under federal law.

"It's not a complete relief, but we definitely think it's a step in the right direction," said Kathryn Mallory, secretary of the Environmental Bankers Association and environmental policy manager at Charlotte, N.C.- based First Union Corp.

John Byrne, a lobbyist for the American Bankers Association, said states must continue to press the safe harbor issue because it could influence congressmen who still haven't decided on the federal legislation.

Currently, 30 states provide some form of general environmental liability protection for lenders and trustees of properties that need to be cleansed of hazardous waste.

The goal of the bills is to encourage redevelopment of unused inner-city industrial properties that developers, bankers, and municipalities don't want to touch, bankers say. That would bring these properties back into productive use and restore them to local tax rolls, said Vermont Bankers Association president Timothy Hayward.

The problem is that bankers have become increasingly gun-shy about lending to developers of contaminated sites, who may be labeled as polluters. Lenders fear that, if a cleanup becomes necessary and the owner goes bankrupt, they may be stuck with both the vacant property and the cleanup bill. And that tab could easily surpass the original loan amount, Mr. Hayward said.

Bankers and municipalities have also become hesitant to seize properties with hazardous waste liabilities that could incur big cleanup bills.

As a result, Mr. Hayward said, "what you have is these derelict problems sitting there in the downtown area, a blight and a hazard."